I run a virtual goods (ie: domains, templates, graphics) auction site and I want to give my users an option to safely buy the goods by acting as a third party merchant. So the buyer will send the money to me, then I verify that the seller delivered the goods, and then I send the money to the seller. First I thought of using PayPal, but then I read all of those horror stories where they hold your money for 180 days for no reason, so I don't know anymore. Then I realized that I might be getting the payments with stolen credit cards or stolen PayPal accounts and that's just trouble... Is this even possible for me to do? How does Escrow do it? Thanks.
I wouldnt advise doing it, you could lose a lot of money. Especially if you are using Paypal. I mean think about it, you will be sending money to people, and then they will just claim the cash back. I would rethink your idea through.
From what I read from your description, it does appear that Paypal would not be for you as it may be against the AUP for this. Escrow services are generally handled by lawyers or accountants who have the legal credibility to handle such things and one where both parties can trust and is impartial. If you are new and you do not have a reputation, both the buyers and sellers would need to trust two unknown parties which makes it less trustworthy. They can con you and they may think you are out to con them. I think in the auction, probably it might be best to just let the buyer and seller handle all the financial and shipping aspects of it and probably just forward you a commission for using your service. That would be best for everyone. If you however want to persue what you intend to do, talk to a lawyer first. The term 'Dropship' is used when a seller does not have inventory or ship from his end but offers products from the manufacturer. When a sale is done, the product will be sent from the manufacturer to the customer without the seller having to bother about shipping or seeing the products.